tv Squawk Box CNBC January 17, 2013 6:00am-9:00am EST
good morning. boeing grounded. the cfpb is unveiling new regulations for mortgage services and a hostage crisis. americans are among the workers being held at a gas field in algeria. it is thursday, january 17th, 2013 and "squawk box" begins right now. good morning, everyone. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. in our headlines, the united states, europe, japan and india
are grounding boeing 787 dreamliner jets while the batteries are being investigated. shares of boeing are down once again this morning on this news. in fact, at this point, the premarket is down by almost 3%. phil lebeau will join us live from o'hare in just a moment. also today, a number of names to watch before the opening bell, including citigroup, blackrock and united health. as always, we will bring you these numbers as soon as they hit the tape. we have weekly jobless claims, housing starts and the philadelphia fed survey. claims are expected to dip to 368,000 from 371,000. housing starts are seen rising to 890,000 to 861,000. andrew, we have a lot of things keeping us busy today. >> we do. thank you, becky. in the meantime, let's turn back to boeing. cnbc's phil lebeau is at o'hare this morning with more. good morning, phil. >> good morning, andrew.
we're here at the international because this is where the last dreamliner in the united states landed last night. we'll talk about that in just a bit. first, let's talk more about this fa adirective, essentially grounding all 787 dreamliners. this directive issued yesterday afternoon. it covers technically just usair lines flying the dream liner and usair space. but in reality, all other civil aviation authorities around the world follow what the faa does. that's why we see europe, india, japan all agreeing to ground the 787 in those countries, as well. the reason for this grounding, they want to ensure that the batteries in the dreamliners are safe. this was prompted by the faa looking at the emergency landing in japan just a couple of days ago. that was a second understand with the lithium ion batteries on a dream liner. faa says that a&a battery released electrolytes.
these conditions could result in damage to critical damage in structures and the potential for fire in the electrical department. there's the directive grounding the dreamliner at least for the foreseeable futures. meanwhile, lock airline out of poland flew the last 787 into o'hare last night. they had a big festivity canceled here at o'hare. they had to cancel it. you can see the frustration with a lot of executives once they got into chicago. >> we think it's inappropriate to go any further with it. >> who made the call? >> please, this is unfortunate and not the time for a press conference right now. we don't have a lot of information at this point. it's brand you this. >> who made the call to call things off? was it you? was it the city? >> there's a number of stakeholders involved. >> and as you take a look at shares of boeing, we go all the way back to last week, the
beginning of the last week, that's when there was the battery fire on the japan airlines 787, but with part at boston's logan airport. through yesterday, guys, shares of boeing down a little more than 4%. premarket, though, we see it indicating it's down another 4% today. the bottom line is this, the big question for boeing and the faa, how quickly can they fix the dream liner? is this something they can resolve perhaps in the next week to ten days? there has been a number of suggestions that they believe they can come to a fix that quick. if that's the case, andrew, because they can get by this rather quickly. but the longer this on drags out, the more this becomes a problem for boeing, also, will they have to make and changes to the production process? that's the key for boeing. if they have to slow down that process, that's going to be where the investors start to take out their frustration on boeing. >> thanks for that, phil.
let me take it one step further. if i'm an airline that has these airplanes on order and i no longer want these airplanes, i put down a deposit. do i get my deposit back? how does it work? >> it's all negotiable, andrew. and that's how it always is in the airline business. for the most part, you're going to get most of that money back if you want to cancel your order. but look at it from this perspective. let's say you are expecting to get airbus -- i mean dream liner number 150. they're right now building number 100 in the factory in everett. do you get out of line for a plane you're supposed to get in a couple of years and then go over to airbus because you're further back in the line there? no. you're pretty much locked into your position where you are. what you're more likely to do is go to boeing and say we've faced delays once getting this thing built. now we're facing further delays potentially? let's talk money. let's talk about how we're going to bring down the price we're paying for that dream liner.
>> yeah. phil, are there new orders coming in at this point? >> no, becky, but that's primarily been driven by the fact that the backlog right now is 798 planes. so if you were to get in line with becky quick airlines, you're not getting an airplane until 2020. and so you were already in the back of the line and the you were stepping back and saying do i want to go with this or do i want to go with something from the a350 airbus. >> phil, i know you're not an engineer, but you're our engineer on squawk. what kind of fix is on hand here? what are they talking about in terms of what they would need to do over the next ten days if that timeline is realistic? >> the question is, andrew, how do you regulate the power going into these lithium ion batteries. and what is clear to me is you have to regulation the power
going in and out. they have done flight testing galore to make sure they can regulate the power. but tleerl something has gone wrong. also, with you make sure that if a battery fails, it fails and that's the end of it and there's not a fire potential. if it fails, that's one thing. if it fails but it prompts a fire, that's the concern for the faa and other civil aviation authorities. >> but you figure for a power system, the failure of the battery wouldn't mean that you would lose some type of aviation controls. there must be redundancies for that, too, correct? >> absolutely. you've got sex generators on these planes. let's say you lose power in one particular area. the redurntsy can deny flying, continue providing the electricity, the power, the different systems on board. the issue is if one battery were
to go down, how dow make sure that it doesn't start the fire? with lithium ion batteries, that flamebility possibility, that's the concern. >> it seems like there would be a way to monitor the temperature very closely so you would know if it got anywhere near. >> listen, joe, they have intesh cooling agents built into these batteries, into the design. there's a directive from the faa. so this is not something new. they've known about this for some time. the issue is why has it failed in these cases and is it a design flaw? >> so if someone cancels on an order, would boeing have to tell us or would the airline -- do they have to say we canceled? >> well, they don't have to say that, but we do get the orders from boeing every week, every thursday morning. and usually you will see one or two cancellations. maybe somebody canceled three planes that they were taking or they ordered three planes.
it's the big cancellations that you want to watch. >> and, phil, united healthcare, the behemoth $55 million market cap managed care company is reporting $1.20 a share versus expectations of $1.19. versus 28.23 billion was the estimated revenue number and i think it came in above that, 48.8 vs 28.23. however, for 2013, the company is forecast iing 525 to $5.50. they talk about some other port stuff in terms of the medical costs ratio or medical care ratio increase by 80 basis points. and kind of the inverse of a profit margin, so it's not good, really, when it comes up, but only 80 basis points in that case. michael boyd is with us.
he's an aviation expert. bringing him into the conversation and michael is doing back flips, not trying to use any epifets. you say egg on their face is one thing they call it and that they would be in deep yogurt if this were to continue. that's in lieu of using some other terms, right, michael? but this is not good for the faa or for boeing. >> no. and the faa has been with this airplane from the beginning. so if there's suddenly a problem and batteries have to be brought into compliance, well, they were in compliance before. overall, i understand where the faa is coming from. but they have an issue how did this happen months after this airplane has been flying around the skies? as far as boeing goes, you just heard from phil and others. if this airplane has a problem, it might cost them a lot of money. >> how would you demonstrate
that the batteries are safe and in compliance when you've already -- i figure you've already done that, so how do you demonstrate better? >> that is not going to figure up. you have some sort of a simulator that would simulate these. airplane manufacturers that have a machine that take planes all day long and test it under stress. but for batteries? i don't know. this is such new territory that is involved. i'm just hoping they can find a fix or for this very, very quickly. >> and you had said before, they have how many hours already on this thing? tens of thousands. now, for the u.s., there's only six of them in the u.s. fleet, 6,200 eighteen planes. but if you own fl ippon revenue
pb that's a lot of revenue going out the door. >> how do we estimate -- i know it's only six planes in the u.s., but united, what kind of revenue hits do they take? >> very low because they can replace those easily. it's not going to hit them hard in terms of lost traffic ask lost revenue, but down the line, they have a lot on order. so does american. that's something we're going to look at this. if this is going to be a long delay, that 798 backlog might drop quickly. >> i just wonder, in the notes here you keep asking about the delay and that is we don't know at this point. how would they demonstrate quickly that it's safe? what will that take to do that in let's say two weeks, three weeks, a month? >> well, what if they find out what's causing this battery is
to do a diode or a vacuum tube somewhere that they can replace very quickly and get the battery back to a level of dependability? i think all of nipo airlines, because if this things breaks in cha car ta -- chikarta, it would be very still. but boeing is in, as i said, some deep kind of yogurt. >> and guys? >> phil. >> it's important to keep in mind when you talk about these lithium ion batteries, these have been designed specifically for the dreamliner. you've got to make sure that you have specifications that can be met by these batteries for this
airplane. as you guys well know, the specifications are extremely specific. that's part of the issue, as well. >> i wonder when we look back on this, michael, so we just don't know whether it becomes the growing pains for introducing a new -- you know, an innovative new aircraft or whether we look back and say, wow, that is really the start of something. i still get the feeling they can handle this. i don't know. but i guess we just give the benefit of the doubt to boeing because it's our premier exporter in this cup. >> is it going to be like a 7847 four years ago where we had major problems and worked it out or is it like a lockheed electra that basically puts the company out of the airplane business? i don't think so. >> what were the problems? >> they fixed it and they dealt with it.
that was a leap forward, as well. >> how did that take, michael? give us a brief history lesson. >> if i remember, pan am, i think they had to divert to gandur or something. but we're talking there it was several months of working through it slowly. and, again, we didn't have the kind of scrutiny we had in 1969 that we had today. we had no internet. today, a flush lever goes back on the 787, we're going to know about it. >> there's no way we're going to go from week to week without looking at every -- you know, you see a drop on the runway, you're going to hear about it, i'm sure. >> boeing's engineers have something with them in terms of the bargaining table, right, guys? phil? >> i agree. >> not at all. these are the guys who know the plane better than anybody else and this is a time when they're already working with the faa, but you really want to be working hand in hand with them.
they said they've made their last best offer to boeing. we'll see if that's the case. but boeing needs to get that resolved as soon as at the 747, you were young. >> i don't remember, though. >> when they came out, it looks like a plane that couldn't fly. it was too big. it was like a bumblebee. a bumblebee is not supposed to be able to fly, either. but they do fly. you have to get going fast enough. >> i have to admit, i still think it's a minor merkel. >> when you see a 747 coming in, it looks like it's barely moving. it's a wonder. >> the wonder of engineering. >> bring leonardo forward.
i don't mean dicaprio. it would bring him to tears. the protection bureau is unveiling new rules for mortgage servicers after the cfcb reloosed new regulations on mortgage lending. good morning. >> good morning, andrew. some of these may sound familiar from last year's settlement. but that only covers about half the market. so these rules are designed to protect borrowers from robo signing and other foreclosure revenueses. service, a is servicesers mouft give time for ending dual tracking. so businesses must notify delinquent borrowers of foreclosure alternatives in writing and provide, quote, easy, ongoing access to a
servicing representative to help those borrowers. the servicer can't put its own interest first. during the crisis, some skfrsers foreclosed because it was in their financial interests. other rules covered basic stuff like clear monthly statements, warnings before rate adjustments and easy access to sloan. this hits the rest of the markets, especially. those whose stocks have been on a tear lately. depending on how those specialty services currently do business, they could take a hit. >> if you're a good servicer who has been doing sensible things, this will be probably about what you're doing now. just with a heavier enforcement regime behind it. for servicers who have done a
poor job, and many of them have, they will have to change their process and get in line. >> cspb will monitor closely and it has the ability to send in auditors. back to you. >> thank you, diandiana. what kind of penalty do you get if you don't follow the law? monetary, of course. but basically that depends on what the issue is and what you did wrong. i'm not going to put any number on anything. but it depends on what you do. but they're going to go after you. i asked richard core dra cordri they were going to do and he said they would be aggressive, they would look at the books. >> when we come back, we will have more on the latest developments on the
international hostage crisis in nigeria. there were reports this morning that some workers have skapd. ♪ [ male announcer ] how do you turn an entrepreneur's dream... ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece? ♪ whatever your business challenge,
at a natural gas field in algeria have escaped. algerian tv says 15 foreign hostages have made it out, including two french. another report says 30 algerian workers escaped. as many as 41 workers were seized. algeria's government were in talks overnight about whether international forces could help against the militants. when we come back, find out if your employer made the cut of the best employers to work for. before that, take a look at yesterday's winners and losers. ♪ ♪ ♪
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welcome back to "squawk box," everyone. "fortune" is unveiling its top 100 companies to work for. joining us is leigh gallagher. leigh, this is a list that we know the tech names tend to be at the top. this year, it's the same, number one, google. >> google is number one this year. it was number one last year and the year before. it is a perennial on our list. >> they're not resting on their laurels. >> they're not. but it is really, really tough out there in silicone valley. but to get and to hang on to engineers, is these tech companies' biggest challenge. the competition for perks is crazy. >> what do they have that's new? >> google has everything, free food everywhere, wi-fi and free enabled shuttles. they have a morbid but wonderful
benefit. if someone's partner or spouse dies, the surviving partner gets ten years of 50% of salary. you don't have to have been there for a certain amount of time. but the big thing they've done is a big seven acre sports complex, which is massive. they have horseshoe pits, volleyball courts, pools, basketball, everything. >> anything to keep you on campus and keep you happy? >> anything. exactly. >> number two is a technology suspect. sas? >> yes. sas is a privately held software company in carey, north carol a carolina. their campus is astro namicly perk filled. where google has all the perks, this company has basically formed a city where the employees don't need to leave. they have intermural sports systems, they have a salon, you can do anything there. they have artists on residents.
they encourage creativity. and the whole point is that the ceo, jim goodnight says contented cows give more milk. the ceos do this because they get more from their employees. >> they're doing this for a reason. >> does it tend to pay out with the companies that have made it on to the list? >> it does. it's hard to get an exact read, but there is a trend. these companies do perform better than their peers and their stocks tend to do well. >> let's talk about the other top five. ehg health care services, boston consulting group and wegman's market. >> wegmans is interesting. it's funny because you talk to people who know wegmans, it's like a cultural thing. >> i love wegmans. >> i went to cornell. love wegmans. >> the employees feel that way,
too. we rate the survey on what the companies say about their employers. the workers here cheer lead. they get tons of rewards. employees get to give each other perks and benefits and anytime someone gets a compliment from a shopper, they get an extra break or time off or paid vacation or something like that the. >> and also, they bring in a lot of relatives, too. >> yes. something like one out of five employees is related. >> what about boston consulting? >> this is an interesting company. this isn't a crazy campus. what it is is a company that really, really treats its employees very well. they have all sorts of systems in place for someone who is working too much. in the consulting world, somebody can burn out. a lot of companies are encouraging, volunteering and working through nonprofit. they will offer new employees. you can defer your start date by six months and they'll give you $10,000 to go and volunteer at a nonprofit.
>> were there any big surprises that came in either in changings or sectors? >> we have some interesting new commerce. one of the most interesting new commerce is mars, the giant company and candy company. it's the third biggest privately held company in the world and it's this really interesting culture because mars is a very private company. they don't like to talk about themselves a lot. founded by and still controlled by the mars family. but the employees let us inside. >> basically. it is a little bit willie wonkaesque, by the way. >> what a mistake. i would have thought nbc universal would have been at the top of the list. >> that's great that you say that. >> i feel very good about what they're doing here. >> maybe next year. >> are they on the list? >> no. because of the ownership structure, companies that are owned by larger company where there's too many different pieces to vault as one whole, it
gets a little complicated. >> leigh, thank you very much for coming in today. thank you for having me. >> if you have comments or questions about anything you see here on squawk, e-mail us, email@example.com. coming up, the stories most likely to drive today's trading session. plus, we're going to talk tech. the street is reacting to ebay's numbers that came in from the bell last night. stay with us. overmany discounts to thine customers! [old english accent] safe driver, multi-car, paid in full -- a most fulsome bounty indeed, lord jamie. thou cometh and we thy saveth!
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level after gaining less than one point yesterday. we continue to watch what's happening. we're getting quarterly results in this morning. blackrock numbers just hitting the tape. reporting fourth quarter earnings of $3.96. that was sharply ahead of the street anticipates consensus of $ $ $3.73. the company is raising its quarterly dividend, as well. an increase of 12%. >> $37 billion and that has quickly become like a -- you know, eats quickly taken the place of a lot of the vacuum created by the financial crisis. let's get to the broader markets. joining us from chicago, joe kinnehan chief strategist at t.d. amare doppler radar. >> how are you doing? >> ferad is from douglas lane &
associates. you did 19% versus the market did 16%. >> yep. >> okay. this year, we're looking at just your thoughts. if i could summarize, it looks like it's bottoms up mostly. you figure that the market at this point might be choppy, but it's been somewhat desensitized to all the political wrangling and is in a better position to handle so so that you just need to pick companies that have good fundamentals. is that about right? >> absolutely. if you look at what we've gone through five years ago and we had the debt crisis a couple of years ago and everybody thought, oh, my god, let's get out of the market. if you stayed investor, you had good companies that were going to grow globally, that have good balance sheets, especially now with energy prices down, housing is better, you want to be invested in this economy for the next three to five years because that's where you're going to make money. you're not going to make money in fixed income. you're not going to make money focusing on only pure dividend stocks that are 5%, 6%. you're going to have to have companies that can grow the top
lines, that have the ability to shepherd capital and really can take the consumer that is now in a better shape than the u.s. and now is getting better overseas to grow your company. >> okay. so you're talking mostly about multi national companies or -- >> multi nationals and secular growth companies. >> both? >> both, absolutely. but you want good companies with management that are just not going to sit there and do financial engineering and say, oh, we borrowed more money and because our cost of debt is lower than our dividend and we can do that. that party is over. that game is done. you really want the companies that i think if you want to beat the market and we think actually the market is going to have -- is going to grow, gives you a look at how much firepower is fed is looking at and the stabilization that's going on in asia. it's getting better. i'm not saying it's great. but all those things put together as an investor and look at the individual investor. nobody wants to market that. it's still -- i don't want to go through 809, but if you stayed
invested, you're higher than you were in '08 and '09. >> qualcomm? >> it's secular growth. samsung is going to do well. visa and mastercard are growing double digits. consumers all over if world, it's clipping coupons. you're not taking any credit risks. and we know more people are moving away from cash. look at companies doing that as opposed to a lot of investors say, well, i want that 6% dividend and i'll be happy with that. >> okay. and you talked about ford for a while. >> ford. their secular growth rate is there for you. you look at the auto companies, they're still growing. the average car is 11 years old. they have greater national exposure. they've just doubled their dividend. it's a dividend stock now with growth. a year ago, it didn't have a dividend. it wasn't investment grade. but you're up 40%. maybe you don't chase it now, but -- >> all right. so, joe, when we started the
year, we did that, you know, that deal for the fiscal cliff. i don't know how you refer to it at this point. no one liked it. >> deal with the devil, joe? >> well, no. it was enough. it was enough. it got us through that period. then we said, well, we've got to two months until the debt ceiling. it's the 17th today and it just feels different. we're not -- we don't have a clock on cnbc showing the days to the debt ceiling when we hit it. it just seems like the market b is getting desensitized and we figure something -- it's not going to be the deal that we thought. is that true? do we know that, that it's not going to -- you know, derail this? >> my sense is, joe, you might be back to a clock in about a month. i think the one thing we learned from the fiscal cliff was don't really pay attention to anything that comes out of washington until "d" day. >> so that is what we're doing
now. we're looking at individual results. >> and i think that's actually what people want. they want to trade in the market. the nice thing about you is you're talking about earnings, you're talking about things that matter to the market right now. everyone i talk to is saying i'll deal with the debt ceiling when i get there. actually, if there was a lot on worry there, we wouldn't be going, budding up against 5 1/2 year lows. clearly, people are not paying as much attention to it right now and now we have the gun thing going on out of washington, d.c. so even the people in washington themselves are putting it almost on the back burner for another few weeks. once a week or so, you get an easy statement out of somebody. but i think overall, the market is trading like the market should off the things that matter to the market. the debt ceiling will be a short lift. >> i word when the average
person gets engaged again. i wonder how many individuals at home are saying, hon fee, we own some united healthcare. we've been buying it because of obama care and we know everybody is going to be added somehow to be covered. i just don't see that type of interest to -- it's professionals that are trading the market. it's not -- individuals are still not in. >> i agree with you to a point. >> you say something about apple. >> and you only trade at the -- >> in what? >> in facebook. they're kind of a cool kids' stock, so to speak. we had volume, retail customers were definitely trading, though. there are certain names people want to be involved with. for tax reasons, people got out of that last year and many of them put their money back into the market through facebook. it will be interesting to see
after a month or a month and a half what happens after that money switches back into apple. we need apple to come out with something exciting. this is the first time the blackberry 10 had that excitement. when was the last time a company besides apple had that much excitement around a company? >> and so when the retail investor if and when they had come back, that you would often be a signal saying that often looks at retail value. when everyone wants to be at the same place, that's probably not where they want to be. >> it's tough for them to go all in and i see that. so i agree with a lot of what you're saying. but the one thing i would say to retail investors is work your way in slowly so you can wroo the time to buy down drafts. retailers make the mistake of going in at levels like this and then when we have a sell-off, it
panics them out. >> same analogy to 401(k) plans. people try and time them sometimes. it's dollar cost averaging. you're never going to pick the bottom and you're not going to know where the top is. >> we can put charts up for ten years and you actually made 10% over ten years. sitting here two or three years ago when the markets were dropping, everybody got scared. >> you made 10% total per year. >> if you back now to ten years, because we don't have a one with us any more. >> and so you've got to have a longer time period as opposed to picking certain stocks. >> okay. we've got to go. we have to talk about an individual stock, i think. thanks, joe, thank you. like ebay. >> you said apple was hot and facebook was hot. >> i looked at you because you're so cool that you know the new thing, like the magazine
thing on your mini iphone, your maxy add. you know the new stuff. >> one day it might be. >> i feel like you think i've crossed that line already. let's talk about ebay. ebay posting better-than-expected earnings. joining us now on the set is victor anthony. this was a big -- this was probably their biggest quarter ever. >> yeah. eps growth to 17 ers. it was in line with my estimates, slightly above the consensus. but one thing that i track, the value of all the goods coming through the platform, that number was 19%. it was in line with my estimate. however, it was a very, very strong number. >> what does this say about the consumer, broadly? well, you know, it says that the consumer is -- two things, one, it says the consumer is back into the market.
and, two, it says the consumer is looking for deals on the internet. the shares of retail away from traditional retail over to the -- >> was it the view that people had stopped using ebay? that amazon had picked a lot of it up and that people had gotten the auction fatigue. has that not stopped or now they sell differently? >> yeah. so the models have shifted away from auctions over the fixed price. and so at 19% revenue growth i had talked about, that number was negative several years ago. and to put that into further perspective in the fourth quarter, e-commerce goes up 15% year over year. so at 19%, the company is taking market share for the first time in over five years. so that's a materially positive development for the on company. >> are more people putting stuff up for sale like just us, meaning you find junk in your house you're putting up for sale or is this more a function of professional services that are
now using it? >> i think it's a combination of both. i think it's a combination of the fact that the company has re-engineered the platform and made it more usable, made the platform more sellable. so you have more sellers putting more content on ebay. you have consumers gravitating over to ebay. it is, in my view, one of the top channels to buy on the internet. >> but what percentage of sellers are actually businesses? maybe even brick and mortar businesses or people who have decided this is going to be my profession versus peck aboutky deciding or joe or whomever deciding that we had put something up in our attic and putting it up for sale? >> there's actually a large percentage that do this for a living. ebay, years ago they've created an economy across ebay. several mom and pop businesses use ebay as well as amazon to sell items. >> what's your target price on the stock now? >> i do have a hold on the
stock. my enthusiasm for the stock is tempered by the valuation, which i think is an express of the company's growth rate. there's a lot of things i think for the company for 2013. they have an upcoming analyst share which we get get more on those. >> come on back when you -- if you change your view, positive or negative, let you know. >> thank you. >> there are businesses based on ebay. >> totally. >> i'm thinking that in "40 year-old virgin" remember it was based totally owe on the ebay model. >> i met a guy at the post office the other day, and that's what he does. >> what does he do? >> he goes -- he goes to the army supplies, he said, from these auctions. i don't know where he does -- not from ebay, but then he puts them up on ebay. i said to him, why do you -- he was very in touch with every
member at the post office and he explained this is what he does. >> do you remember steven correll, he has all those action figures that he's never even taken out of the box, you know? and he's 40 years old and he still has all these -- he doesn't really play with him, but -- >> there used to be shops that set up in storefronts where they would ship all the ebay stuff for you. there was one around the corner from us and it's gone now. >> yeah. those have tapered off a little bit. but ebay is starting to make a big push to get those back up. >> you have to watch, he kicks the girl in the nose, note explodes. blood all -- anyway. >> thank you. >> when we come back, one of the most bizarre stories in recent memories. it involves a heisman candidate, a girlfriend who wasn't and an elaborate hoax. we'll have the story everyone is talking about when we come right back. at 1:45, the aflac duck was brought in
with multiple lacerations to the wing and a fractured beak. surgery was successful, but he will be in a cast until it is fully healed, possibly several months. so, if the duck isn't able to work, how will he pay for his living expenses? aflac. like his rent and car payments? aflac. what about gas and groceries? aflac. cell phone? aflac, but i doubt he'll be using his phone for quite a while cause like i said, he has a fractured beak. [ male announcer ] send the aflac duck a get-well card at getwellduck.com. ♪ let's go.
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married. he didn't have any children, as far as anybody knew. >> the outline of the story were very clear going in. after larry's disappearance, bosses on behalf of their children claiming that they'd been fathered by this rich american. and at the heart of this whole thing, at the very center of this battle over larry's estate is larry. the enigma of who this person was. because, there's something diabolic in this whole thing. >> don't miss the premiere of "shadow billionaire" tonight at 9:00 eastern and pacific on cnbc. weird story with manti te'o's girlfriend. it's a hoax. i've read a little bit about it. >> just --
>> the -- i guess the question on everyone's mind is, you know, when did they know, who knew what, when did they know? same old kind of stuff. it's not that interesting overall. it's weird to see -- but it's weird to see how, number one, there's a term for it. i forget the term. >> catfishing. i have heard of other people being drawn into this before. the question is what would they be looking for for him? usually you're looking for money. >> what would he be actually a willing participant in the hoax to say i'm a good guy because i got over my girlfriend's death? that's -- >> there's a lot of questions. >> he says he met her but he never did. >> he has said in past interviews that he has met her. his family said the same thing. >> he's never actually saw her in person. it was a long-term relationship that was going on online and over the phone. he says he found out on december 6th when he received a phone call -- for anybody who doesn't know. this is a huge story for notre dame because it was just after his grandmother passed away, he came back and his girlfriend, supposedly, passed away from leukemia at the same time. it was a huge thing that the
team rallied around. >> wasn't really a girlfriend. >> no, it was a relationship -- >> on line. >> for years -- >> was it years? >> i think it was three years. but on december 6th he apparently got a phone call from that same phone number and recognized his girlfriend's voice saying she wasn't really dead. and that's when things kind of kicked in. he told the team about it. he told his coach about it on december 26th. they hired their own investigator, and notre dame is standing behind him saying -- >> and the guy said this is the most trusting individual in the world and now his trust is broken. >> forever. he'll never trust the same way again. >> but it was a picture of, you know, of someone who wasn't the person that was talking to him on the phone. and i don't know. >> strange. >> it is. i'm with you. i looked at who you were talking about. that was a cursed show, wasn't it? >> oh. we were talking -- >> the guy finally died. the father from different
strokes. >> bane conrad who played mr. drummond, for those of us of a generation. >> todd bridges. >> gary coleman. >> was that dana plato? >> dana plato. >> so that was bad, and then gary coleman. >> yeah. >> so now -- >> this guy living with phil drummond. but 89 years old. this was not a scandal-plagued -- >> you still want to talk about lance. >> we'll talk a little bit about lance maybe after the break. >> you got 30 seconds. what's left to say? the guy going from oregon is more interesting going to -- >> well, no, back to the banker behind lance armstrong. >> oh. >> we use that as a tease and talk about it a little bit later. this morning's top headlines plus quarterly results from bank of america. they're expected within minutes. we'll have the numbers and the instant analysis when we return. tdd#: 1-800-345-2550 when i'm trading, i'm totally focused.
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good morning, everyone. welcome back to "squawk box" on cnbc, i'm becky quick along with joe kernen and andrew ross sorkin. we've been watching the futures this morning. so far it looks like a bit of a mixed picture. s&p futures have turned around. they're actually a little bit stronger right now. up by less than a point. dow futures down by just over five points and the nasdaq up by just over three points. this coming after a mixed finish yesterday. >> bank of america is reporting three cents a share. and the estimate is two cents, and we know a lot about these numbers from some comments that the company said on january 7th. we know about some changes, 2.7 billion for the settlement with fannie mae. $2.5 billion for mortgage related issues, including $1.1 billion from occ foreclosure
settlement. $700 million in debt valuation adjustments, dva and fair value fbo and then a gain of $1.3 billion for tax treatment. so you put all that together and the company said it would be modestly profitable in the quarter. as a result, analysts came in at two cents and the company just reported three cents. prior to all this stuff, estimates were up at about 20 cents a share. once again, i don't even like messing around with the revenue number, but i'll give it a shot. the estimate was for 21.026 billion, and this company is saying, total revenue, net of things was 18.89. so, once again, you don't know whether that's the apples to apples comparison, with where the street is, at 21 billion because they are backing out interest expense, fte bases, and other elements. and yesterday when we did jpmorgan there were like three
different revenue numbers and we had to finally characterize the one and it was actually in line. before we do that we'll -- apparently we knew a lot more after january 7th than we did before and it took a lot of the sort of news wor think events out of the actual number we're seeing now. but the stock is indicated up a little bit. looks like it's up about 20 cents or so. 2% on an $11 stock which was one of the best performers in the dow last year. >> that's right. actually for more on the numbers we are joined right now by senior columnist at yahoo finance mike santoli, also equity research analyst at sanford bernstein and gentlemen i know you haven't had a chance to look through all the numbers that we are just getting at this point but brad, what's your early thought on just what you've heard about these numbers, what you think of jpmorgan yesterday and what you're expecting from the rest of these financials. >> the numbers are turning out to be somewhat better than expected. the settlements that we've seen
coming through puts a lot of the expenses, the uncertainty which was going to be next year and perhaps the year after that behind them. it sets the role for a better recovery in terms of next year. the real challenge for the banks is going to be net interest margin coming down and whether the mortgage business is going to continue to boom into next year. >> okay. and of the banks, which do you think is in the best position? which has kind of set themselves up in the best point? >> well, actually, we think that they're sort of a sector rotation moving into the capital markets banks at this point. so that sort of a jpm-goldman argument at this point. we'll know a little bit more as we get into the quarter. but it certainty looks like the trading businesses seem to be picking up. and there's a backlog in investment banking. you know, these banks will have a pickup to offset some of the net interest issues. >> we've been talking about how the banks have such a difficult time ahead of them because of
the regulations that have yet to be written, that are going to be imposed on them, and that's going to make things a lot more difficult when it comes to trading. what's your overall thought about what the sector's going to look like in 2013? >> well, obviously, they're all kind of flinching in advance of this very long developing set of rules. now on the trading side i actually feel like the largest firms are trying to position themselves according to their best guess of what they may or may not be allowed to do and trying to rationalize the size of their businesses according to that. i think they're probably pretty far along in that process. i was writing before the goldman numbers this week that what these people like about goldman is many of the important businesses against goldman there's no other competitor that's differently or lightly regulated than goldman. there's no regulatory arbitrage for somebody else besides goldman. which is not the case in the cities and even jpmorgan where they're in some businesses as very large, you know, capital penalized important institutions that some more lightly regulated firms are.
i think this year in general for the industry should be something from close to business as usual. you have a lot of the huge bucket full of extraordinary items going in the past. no more suspense about housing recovery. it's here. >> brad, at the same time, though, we keep talking about these stories where these companies are trying to, as mike just said, justify the staff that they have and the amount that they're paying them. is it going to be a very different wall street? because we had a couple of guests this week who have said they don't think things will come back, at least any time soon, to looking like the same sort of payday on wall street for the people who are working for these companies. >> well, i think that's very true. if we were to look at what goldman did last year, the lions share went to the stock holders, not to the employees. they brought their kavrp ratio down substantially yet still paid the average employee almost $400,000. so you know, the issue here is reprising the employees, and wall street is always a highly paid world. it won't be as highly paid in
the past. it's necessary if they're going to beat their cost of capital. >> mike, we have citi's numbers coming out just an hour from now. anything you think we should be on the lookout? >> i think everyone's just a little bit hungry for some clues about when they can begin to return some capital, get permission to raise dividends. probably the big things. then, of course, really first quarter, with new ceo mike corbett and talk about broader strategic vision of different parts of the business, what fits, what doesn't. >> okay. and mike, obviously you talked a little bit about goldman sachs. brad if you had to pick your favorite stock in this sector? >> jpm, goldman, those would be the two names. >> gentlemen, thank you both for your time this morning. >> all right, thank you. >> bank of america says that, looking through -- i can't find it, but they're saying 22.6 is the number, 22.6 the number to compare to the $21 billion
estimate so buy because from what they're telling us, that is a better revenue number as well. >> also the federal aviation administration, you probably heard this at this point, has grounded all u.s. registered boeing 787 dreamliners until further notice. this move comes after a string of incidents, including a battery fire earlier this week. our phil lebeau joins us right now with more. this is a pretty big deal, phil, this is not only what's happening in the united states, but this is other countries that have come on board with this, as well. >> and becky, we haven't seen this from the faa where they ground a particular airplane since 1979. that's when you're talking about the dc-10 back then. here's essentially what this grounding by the faa results in. it's not just here in the united states. once the faa came forward with this air worthiness directive, you found europe, japan, india, they've all done the same thing. so essentially you're not seeing the dreamliner fly anywhere around the world. the issue, the lythithium ion
batteries. boeing is working with the faa to prove these batteries are safe and in compliance with what the faa wants to see in the dreamliner. boeing must show they are safe and will not prompt potential fire with a malfunction while in flight. that has been the concern following what happened last week in boston, and then earlier this week in japan. once this directive came out from the faa we heard from boeing ceo saying we will be taking every necessary step in the coming days to ensure our customers and the traveling public of the 787 safety and to return those airplanes to service. the last dreamliner to land in the u.s. happened last night here in chicago. lot airline landing at o'hare. there was supposed to be a fairly large ceremony commemorating the start of service between warsaw and chicago with the dreamliner. they called off the festivities. understandably a frustrating day for the folks at lot.
airlines generally are not replacing or are not expected to replace most of the routes where there were canceled 787 flights with other aircraft. some will be able to do that. many will not be able to do that. so you're looking at some routes where they simply will not be flying them. and just moments ago we heard from boeing competitor airbus regarding what's happening with the 787 dreamliner. here's the coo john leahy on the 787 situation. >> boeing knows how to build airplanes. they build very safe airplanes just like us. the safety record in this industry is phenomenal. it is one of the safest if not the most safe form of transport you can find anywhere. so boeing will get this sorted out. boeing went with this new concept of an all-electric airplane. we decided not to do that, we are a conventional approach. >> remember airbus is in the process of building its competitor to the 787 dream liner, that's their a-350 that they're in the process of
building. looking at a couple of stocks. the company out of japan that makes the lytham ion batteries for the dream liner, it's down roughly 9% since we first saw the first issue of the dreamliner in boston last week. and we also want to take a look at boeing one-month chart. at the end there, it's been like a roller coaster over the last week but a lot of pressure now. that $74 mark. that's where it was olding over the last couple of days. you have to wonder if we're going to see it break lower than that today as the stock is under pressure premarket. back to you. >> okay, phil, thank you for that. and we will obviously keep our eyes on this story. >> i just like hearing you say battery. battery. every time you say battery. it's chicago, right, phil? is that what that is? you try marbles or something? try this -- the rain in spain stays mainly -- >> falls mainly. >> falls mainly. i'll work with you if you want my help, phil.
i want to see what he says to that. >> i'm not touching that. can't go near that. >> all right. it's good. i like that quote, i did like that shot where the guy goes, hey, boeing decided to go with this electrical system, we, on the other hand, did not. could you hear that in there? >> yeah. >> after saying -- >> they're all great. >> let's talk about some of the other headlines this morning. house republicans are gathered in williamsburg, virginia, today to strategize about upcoming battles in congress, including one over the debt limit. leaders are worried there about divisions within the party and are stressing the importance of presenting a united front. and bank repossessions are now fewer in the u.s., in homes back in 2012. that's according to new figures from realty track. total repossessions last year came in just over 671,000. that's down almost 17% from the prior year and foreclosure activity declined 3%. finally, rio tinto has ousted its chief executive. he's been with the company for over two decades.
also took a $14 billion write-down on the value of his two biggest acquisitions, coal assets in mozambique and the alcan aluminum group. he's going to be replaced by sam walsh, head of the company's iron ore division. up next, we're going to welcome a very new and exciting guest host. she serves on the boards of starbucks, estee lauder, dreamworks and groupon. investment president melody hobson is going to be joining us after the break. she's brought some friends, too, including arianna huffington who will join us in just a little bit. futures after bank of america's earnings, take a look. also citigroup. we got coming at the top of the hour with their earnings. so we got a big show here on "squawk box." ♪
welcome back, everyone. bank of america reporting results. you can see right now that the stock is indicated slightly lower although the company came in with better than expected numbers to gain three cents versus the two cents. a lot of this was widely telegraphed because the company had come out earlier this year and let us know about some of the legal costs and settlements that would be in there. again, take a look right now, that stock is trading a few cents lower. citigroup earnings are going to be coming out at the top of the next hour on "squawk" and that
will be another key. >> our guest host this morning works at a top money management firm and is warning clients about what she calls the safety bubble. joining us now on set melody hobson the president of aril investments, president of the chairman of the board of dreamworks. she is on starbucks, estee lauder and groupon. >> not true. >> well, a lot of them. you have a real perspective as to what's going on in the economy. first, explain what the safety bubble is? >> the safety bubble which we've been talking about for the last few months is the fact that everyone got so scared after the financial crisis, pulled in their horns in terms of the individual investor, and even investment committees in terms of pension funds, 401(k) plans, endowments and foundations. big move into fixed income as we know. the last three years, $700 billion went into fixed income. $300 billion went out of equities. five years in a row of redemptions from equity mutual fund, we never had that perform. so we're saying people got way too safe.
and this is a bubble just like the internet bubble, just like the oil bubble, just like the housing bubble. and when this bubble bursts, it's not going to be pretty. so, one -- >> sounds like when the safety bubble bursts, good things happen. >> but it's counterintuitive. how could a safety bubble be bad? one, let's look at treasury bills, ten-year treasury bills for the last ten years last decade have outperformed the s&p 500. that actually doesn't make sense. when you think about the fact that over 7% annualized return, s&p 500 under 2%. that doesn't make sense. so investors have been sitting on the sidelines during all of this. the s&p has doubled since the financial crisis. fixed income, 28% return. so, we look at that and say, this is hurting you. this safety is bad. and we need to see a return to more normal types of exposure. >> what's the tipping point to get people back in the market? >> i think one is just good markets. >> good markets? >> that's the one thing. and then the time. it's like we've had --
>> we always get on the train too late, right? >> always. >> the train left the station, by the way, a long time ago at this point plp >> that's exactly right. >> usually when we get on is right when we should be getting off. >> we should be getting on right when it's really, really bad. fearful when others are fearful, greed why i when others are fearful. >> the tech bubble, that was like a double, people did not have a good experience with blue chip stocks in 1999. remember, it was almost like a nifty fifty bubble with coca-cola. so we had that and then you had the finance crisis. >> also, they were so close together. normally there's some distance between them. >> yeah. >> and yet we had in just that ten-year period, you had infer net bubble bursting, oil, $147 a barrel down to 50s, then you had the financial crisis. >> people when i started as a stockbroker in 1981, and the dow was 780, and we watched it go to 13,000. there's a generation of investors that have never
seen -- they couldn't imagine a dow going to 1,000, 2,000, 3,000, 4,000, 5,000, 6,000, they never -- all they've seen is this -- is what you're talking about. and so there's an opportunity loss by not being invested. >> that's exactly right. >> i wonder how that cures itself. >> again, i just think when these bubbles burst. gold, you know, before the crisis it was $800. we're over $1600. >> right. >> so those kind of things, once we start to see those come down, i think people will start to move in to the equity markets, because that's historically been the best performer. >> not only the prices people feel like they got burned by facebook. people who go in and out of apple. >> the flash crash. >> all that stuff. how important is that? >> well, one, i'm wearing my turtles because it's a long-term story. you're got to be talking about the long-term. i mean that's why we have a turtle as a logo. this idea of quarter, month, year even, doesn't matter. it's the long-term. that young person i want them to be thinking about the next 20 years. >> do you find it's a really
tough sell to people who are, let's say under 40 years old? >> yes it's a tough sell but we go back to the basic principles of investing. they don't change. the stuff we talk about on a day-to-day basis is noise compared to the long-term story. it doesn't change. equities over the long-term have outperformed all other investments. we just keep our eye on the prize. >> that's an argument for people getting into any index fund. your point is that active managers can't be doing safe things and looking just at the index. >> i love the stories in bar ron's and "the wall street journal," i'm sure you saw them. the idea of this active share this idea that managers on the active side have become bench mark huggers. pimco came out with a report showing the active share has really dropped as people know the more different they are, the more likely they are, if they are wrong, to get fired from their job. so now they're playing it very safe around the bench mark. which we think is not the way to outperform. >> we've been told that long-term we're only going to get 6% or 7% total return in
equities. we got 16 last year. and if you have three, four, five years where you average 16, you do the rule of 7 >> it's so much better than the six. and we don't know we won't get those again. we had three years above 35% in the '90s and we're -- >> what do you think we can get back to? >> i just think of the long-term number so equities in the 9% range long-term. you know -- >> do you think we can go back to a normalized world? >> yeah, i do. we call it -- >> we're not going to have the new normal? >> we call it a return to normal at ariel. >> how long until money doubles? he didn't go to a jesuit high school. i can do that immediately. it would be eight years. >> eight years. >> thank you. >> stay right where you are. we're going to talk about financials. bank of america and citi, too. >> coming up, notre dame football superstar manti te'o caught in a bizarre hoax. we'll have more on that story
right after this. and then the dreamliner grounded by the faa. we will hear from an analyst on what it means for the stock and the future of the company. how big of a deal this actually is. a little later this morning we do have earnings on tap from citigroup. the quarterly results and instant market reaction are just ahead. tomorrow on "squawk box," dow component general electric reports quarterly results. we have the numbers, and instant market reaction. starting at 6:30 eastern time. plus scott wine talks business and the economy. that's tomorrow only on "squawk box." at 1:45, the aflac duck was brought in with multiple lacerations to the wing and a fractured beak. surgery was successful, but he will be in a cast until it is fully healed, possibly several months. so, if the duck isn't able to work, how will he pay for his living expenses? aflac. like his rent and car payments? aflac. what about gas and groceries? aflac. cell phone? aflac, but i doubt he'll be using his phone for quite a while
cause like i said, he has a fractured beak. [ male announcer ] send the aflac duck a get-well card at getwellduck.com. nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground and buy my own supplies. that's a great idea. i'm going to go... we got clients in today. [ male announcer ] save on ground shipping at fedex office.
when you spend $50 on hp ink. staples. that was easy. the big water cooler story today, notre dame star manti te'o and the inspirational story involving the death of his girlfriend apparently was a hoax. nbc's kurt gregory reports. >> reporter: notre dame line backer manti te'o was the center piece of a fighting irish football team that shocked experts. recording a storybook season. a highly publicized story about the death of te'o's girlfriend was believed to help inspire te'o to the top of the college football world. notre dame called that story a hoax.
>> this was a very elaborate, very sophisticated hoax perpetrated for reasons we can't fully understand, but had a certain cruelty at its core. >> reporter: the story of the hoax broke on deadspin, a popular sports website that's reporting the girlfriend doesn't even exist. as the story spread, te'o released a statement, saying he's the quote, victim of what was apparently someone's sick joke, and constant lies. in his statement, te'o said he and kukua maintained what he thought to be an authentic relationship by communicating frequently online and on the phone, and that he grew to care deeply about her. an investigation by a firm hired by notre dame convinced him that te'o was duped into the relationship, and the faked death. >> nothing about what i've learned has shaken my faith in
manti te'o one iota. >> plenty of questions remain as the sports world waits for te'o's side of the story. >> and in golf, we're going to source this, national enquirer, but anyway, could tiger and ex-wife elin nordegren be getting back together? according to the national enquirer, read john edwards, you immediately doubt it, woods wants to remarry nordegren and tiger even proposed to her, reportedly, over christmas. nordegren is reportedly considering the proposal from woods, who is said to be desperate to get elin back, but she wants a prenup that would give her $350 million, and anti-cheating clause. and i don't think they mean on the golf course. although he would never do that, obviously. added to the contract, woods is reportedly worth over half of his estimated $600 million
fortune and the entire reports that woods and nordegren have begun having a relationship again, the enquirer calls it a fairly close -- okay you're advising me on how to handle it? thanks, andrew. since the divorce nordegren has dated billionaire jamie dingman and reportedly nhl player douglas murray. woods and nordegren have been living apart well since 2010. >> only been since 2010? >> remember the cadillac? >> yeah. i do. the escalade. >> the escalade -- see she had a 7-iron. i would have thought a 5-iron would have been -- >> and worth noting that the national enquirer, for all of its -- its foibles, has gotten a lot of tiger woods reporting right. >> right. and becky said, you say bat boy. that was the globe. the national enquirer is much higher -- >> they have -- with john edwards they were the first ones
out there a long time in advance and edwards tried to smack it away by saying the national enquirer. they got it right. >> it goes globe, national enquirer -- no, globe, people, "new york times," national enquir enquirer, the way i -- >> that's the way you do it? >> andrew, isn't that about -- >> think about it. >> and then "the wall street journal." >> we'll ask. comments, questions about anything you see on "squawk." shoot us an e-mail, you can also follow us on twitt twitter @squawkcnbc. still to come co-founder of the huffington post, arianna huffington is going to be our special guest. still to come, has the dreamliner turned into a total nightmare for boeing? we find out if the company's ready to clip its wings, or fly high again. that story, plus ar jana huffington is just ahead. ♪ let's go. ♪
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2.8% rise to an annual rate of 885,000 units. also at 8:30 the government's weekly report on initial jobless claims. it's expected to rise slightly to $371,000 for last week. we'll also get the latest philadelphia fed index. that comes out at 10:00 eastern time. prominent ceos are pushing a plan to gradually raise the retirement ages for social security and medicare benefits. this plan put forth by the business roundtable would gradually raise the full retirement age to 70. it would also cut initial benefits for higher income retirees. these are some of the things that had been laid out by simpson-bowl simpson-bowles, as well. and bank of america coming out with its earnings today, came in with a quarterly profit of three cents a share. that is one cent better than the street had been expecting. the quarter did contain more than $5 billion in mortgage related charges as well as several other one-time items. we knew about a little bit of this, though, because bank of america did do that release earlier this year that clued us in to how big some of the legal fees would be. this was the best performing dow stock for the last year.
and the federal aviation administration has grounded all u.s. registered boeing 787 dream liners pending chucks on whether the jet's batteries are actually safe. united airlines is the only u.s. carrier with the dreamliner in its fleet. jason from citigroup joins us with his perspective. how big of a deal is this? >> well, we don't know yet. what we're trying to figure out here is whether this is a manufacturing or a design issue. if it's a manufacturing issue, it's probably going to end up not being that big of a deal. we've seen lots of new planes that have been introduced into the global airline fleets over the last 30 or 40 years, each of them has had issues out of the gate. if this is a manufacturing issue we probably get a quick fix. if it's a design issue, probably takes a little bit more time, it would be a little bit more damaging to the overall outlook for the air craft in the near term. >> boeing stock has been trading down over the last week, as more of these reports and problems have kind of dribbled out. is this a situation where, do you think this is something we
know a week from now, two weeks from now, whether this is a design or a manufacturing problem? >> you know, the faa has got two things going on right now. one is, this grounding, which is probably shorter term in nature. a month or so, maybe less. in which they have the airlines go in and demonstrate that the battery packs that they have on the aircraft are safe. they're running a concurrent process, which will probably take about three months it's an overall comprehensive review of the design, assembly and manufacturing of the aircraft. so unfortunately for boeing shares we're probably a little bit gate d gated here today for the next three months until the review is done. >> gated. that's one way of putting it. what would you do with the shares right now if you already own them? >> i think you hold onto them. as i suggested, manufacturing versus design, we don't know yet. manufacturing is going to be fine. and if we look at the future of the aircraft, which is what this is really all about, what we need to be focused on here,
customers, airlines, have a lot invested in this aircraft. >> right. >> they want to take delivery of these aircraft. they feel their business models, their route structures, their investments in airports around this aircraft. so i think you're going to see them be really patient with boeing in trying to fit -- to fix the problems that we have here. >> although other analysts we've spoken with agree with you that the customers do have a lot invested, but maybe this is a time for them to go back to boeing and say we want a discount because we've already been stuck with delays for this, this is the second go-around for some of these delays. is that going to cost boeing a lot of money? >> well, first of all, we haven't had any delays yet in deliveries. boeing is going to continue producing the planes and will have to go back and do any work on the aircraft that they produce during this period if there is some sort of issue that needs to be addressed. as far as compensation for the airlines, there are a lot of non-cash things that boeing has been doing to make their airlines happy. so i don't think -- >> like what, for example? >> well, for example, you know,
boeing currently has the ability to charge airlines for the maintenance books. they have a kind of annual renewal cycle on getting access to that kind of i.d. they can give that away for tree. that doesn't cost boeing anything to do. they also have to do certifications on aircraft, on weight, for example, so if an airline decides that it wants to change the load factor on an aircraft officially when it's flying into an airport to save money, boeing is the only company that can change that certification. they can give that away for free as opposed to charging. >> you say if you already own the stock you would hold onto it, if you don't own the stock, would you buy it on the dips? >> i would be looking for an entry point. you know, the headlines clearly have been fairly -- fairly bad. and it definitely creates volatility in the stock. i can't tell you exactly where the trough is going to be in the stock but i would certainly be ready to jump on this here over
the next -- over the next month. i think we're going to get a nice entry point in the stock. >> jason, thank you very much. >> you're welcome. okay, coming up in the next hour of "squawk box," market from mohamed el-erian, to talk about the debt ceiling, the recent market rally and earnings. . "squawk box" is back after a quick break. >> from the debt ceiling to gun control, there's nothing arianna huffington won't talk about. the co-founder of the huffington post joins us right after the break. right here on "squawk box." [ male announcer ] you are a business pro.
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welcome back to "squawk box" this morning. checking futures right now. dow is off slightly, nasdaq looking up about four points and the s&p 500 would also open up slightly. bank of america out with earnings this morning. beating the street by one cent. still worth noting that down 63% in terms of the drop in fourth quarter profit but that's in large part because of so many of the settlements, legal settlements and fees that they paid. citi coming up in just a few minutes with their earnings. we'll bring you that when it arrives. joe? >> okay, thanks, andrew. what are the three big media trends of next year? joining us on set is arianna huffington post. and our guest host mellody hobson continues, president of
ariel investments. when we have arianna in here, this is not a general news network that kind of slants -- you bring because you are such an unbelievable businesswoman when you appear with us you become like capitalist extraordinaire. which i love. because you love capitalism, and you love jobs, right? >> absolutely. >> we don't argue about anything. >> no, we don't argue. >> we all want more jobs. and we all want more creative ways to create jobs. >> right. >> and also we want people to be less stressed during their working hours and during their play hours. that's why andrew and i are wearing our jaw bones. >> our jaw bones. >> up. he's wearing it like that because he's a guy. i'm wearing it like this because i'm -- >> we get to hold hands.>> how holding health care costs down? how does it play into obama care? >> basically the world is realizing more and more that stress is one of the main reasons for why health care costs have been rising.
75% of our health care costs are due to chronic, preventable diseases. and we will never be able to contain health care costs if we don't take charge of our own life and reduce stress. and businesses are beginning to recognize that helping their employees reduce stress is actually a performance enhancing tool and it helps keep down business costs. 25% of corporate america at the moment are introducing stress reduction techniques into their workplace. >> does that show when you get stressed? >> this shows how you're sleeping. how much you are walking. what kind of food you've taken during the day. >> i want it for the measuring my steps but i don't want it for the amount of sleep i'm getting. >> well then you know what you can do? you can download an app called gps, it's free, and it gives you an indication of your stress, your heart rate variablety and
you personalize it. >> the heart rate variability is the indicator of stress? >> of stress, exactly. and then, you know, you personalize it with pictures of your kids, blake, in your case. >> right. >> scott. >> and music, nature, anything that helps you get less stressed, more peaceful, more balanced. >> so do you think this is the kind of thing that you'll go out and give to everyone who works at the huffington post will health care companies want their -- their people to be wearing them, to offset health care costs? where does this go? >> well, i think, actually, this is just the beginning. i was at ces in las vegas, and there are at the moment 30 million wearable devices. with projections of this becoming a multibillion dollar business. what's underneath it is consumers taking control of their own health. it's part of the trend from presentation to participation to engagement to empowerment. all the things that have been going on. >> her job is even more
elegant -- >> going to create a dime. >> you take thooist this one step further and some of the insurance companies are talking about what would happen if you lower people's premiums depending on how much activity they have. that could become a huge business. >> although the flip side of that is do they end up raising your premiums if you're not active enough? like they're monitoring your lifestyle. >> there are now car insurance companies that you can put a little device in your car. >> yes, the chip. >> and it fl lows where you go. >> and if you speed -- >> and they lower your premiums. >> we're talking about mainstream companies like general mills and target and aetna that are introducing medication and mindfulness and yoga into the workplace. >> how do you measure, the heart rate variability? i mean how high your heart runs and how low it runs? >> we work through a company called heart mark to do that. and it's approximate malstress. we don't sleep it's a medical measurement.
but it gives you an idea of stress. the key is not to let it accumulate during the day. >> ariana, when i read the huffington post my stress usually goes up. whoo, whoo it goes off the charts sometimes. >> that's why you need to be writing more for the huffington post. >> oh, yeah, all right. i need to be your coconservative. like david brooks. how about the three big media trends? we've got to talk about that. >> right. i think they are first of all, as you said, moving from presentation to participation. readers, users don't want just to be talked to, they want to be involved. self-expression has become the new entertainment. and you see that again and again. the second trend is actually paradoxical, it's that we're using technology now to help us disconnect from technology and connect with ourselves. i mean all these devices are really a way to help us deal with our addiction to technology. which has made people more stressed. i know it's a paradox but truth is often paradoxical. and the third trend is really to
see that people, instead of just searching for information, they're searching for meaning. they're searching to make their lives mean something, make a difference. that's why we have so many brands identified with causes. and once the halo effect of being identified with the causes, you have coca-cola and wellness. you have johnson & johnson and global -- and it's actually a great way now, to monetize what's happening online. instead of cpms, it's a brand of platforms in partnership with different brands. >> what do you think about some of these ads? coca-cola has really taken some flak from the critics for its new ad campaign. it's gotten out there and said, yes, we need to watch how many calories we consume, but it's not just sugary beverages that are doing this. it's the amount you exercise. it's everything that you take in. is it fair, is the criticism fair? or is this a case of just a company that is evolving? >> well, i think it's a very clear demonstration of where the wind is blowing. that wellness is going to become
more and more important. that people are recognizing that people who don't take care of prevention, and then we're never going to be able to take care of health care costs at the other end. >> all right. i want to -- now i want to just quickly talk about how we create some jobs and i also want to get mellody's feedback on this. we had henry blodget on the other day, and were you -- >> i remember asking the question. >> you asked him, he's been on it for awhile, and to me it makes no sense. his notion is that corporate profits are too high, and what they need to do is just start hiring more people whether there's demand or not. >> what i will say in fairness to him we gave him 30 seconds. >> but that is basically what he's talking about. hire more people, it will create value for the society as a whole and then companies will eventually -- >> companies will ultimately become more profitable. >> can you imagine a company that wasn't responding to demand? how do we compete globally if we're hiring people just for the
sake of digging holes and filling them back up again? >> look at walmart. look at what walmart which announced that it provided jobs -- >> you could say that this doesn't make sense for the bottom line. >> they're going to need those people anyway. they just happen to be veterans. >> but they're making a very important decision that it is our social responsibility to provide jobs for vets. >> what a cynic might say is it's a bribery story. >> here's the point with me. i don't really care why people are doing good things. as long as they're doing good things. i mean this whole thing of examining people's motivation. why did mark zuckerberg -- >> but you don't want it to be actually counterproductive in the end. >> no. >> if the company hires too many people to where they can't compete globalry then it hurts -- >> but i'm with ariana. we spend why too much time looking into people's motivation. >> why is he giving? >> because the movie was coming out. >> i was going to say the one thing about the walmart story is
that there is some smarts to this. because, first of all, not only are you doing a public service, but one would say that especially for the everyday american, they're more likely to go to walmart as a reflection of what walmart is doing for society. so there is a business imperative there, as well, that makes a lot of sense. which brings you closer to the company. you'll say, everyone knows a veteran. so you say to yourself, you know, i'm going to make sure i go to walmart for my purchase. so i do see that being effective as a business decision, as well. >> should corporations ever not maximize profits? >> they can maximize profit but you know the whole idea of the bottom line. >> sometimes you do not maximize profits. and at the end of the day -- >> short-term for the long-term. >> maximize them long-term. >> right. >> but you are still trying to maximize them long-term. >> we talked earlier today from leigh gallagher from fortune who was talking about companies that treat their employees well. they don't do it because it's
altruism they do it to keep a competitive edge. >> that's what the bottom line is, the bottom line, how you treat your employees, and how you treat the other stakeholders. you know, the community. >> we tried historically, worker-based societies where it's more about the individual worker than, you know, these corporate, you know, the guys that are -- you see what the end result is when it's a worker based. doesn't work that way. right? >> what are you saying, joe? >> when the comrades, over in the -- >> that's not a worker-based society. that's a demand and control society. >> that's -- >> make decisions from the center. that's not what we want. >> no. >> ariana i have a quick question before we let you go which is this, it's about long-term, journalism, quality journalism long term, to "time" magazine is firing thousands of people. "newsweek" just shut down its print publications. "new york times" is about to lay
off some people. so there's some real issues going on in journalism. do you think long-term quality journalism, the kind that exposed some of the walmart stuff and some of these things that are going on, is here -- is going to stay? you guys won a pulitzer, not to say it doesn't exist. but the economics of it make it so much tougher today. >> actually, i think it is here to stay. i think what we're seeing is a convergence, where "the new york times." "time," "newsweek" are doing more and more stuff online. more and more social media, where the huffington post is doing more and more deep investigative stories, which we just did a series on breakdown in america. with thousands of reporters who were just done a series on obama's second terl. again with thousands of reporters. i don't think it's changing. it's becoming much more multimedia. the pay story is also coming into it own. i think that's going to go better than what people think. that will allow them to have the profits to invest back into --
>> maximum long-term greed, right? >> exactly. >> arianna, thank you very much for joining us. >> thank you. >> it's great to be here. and to be here with mellody. >> mellody is going to stay with us for the rest of the program. she's our guest host. still to come, market master mohamed el-erian will be joining us in just a little bit. plus earnings from citigroup that are just about seven minutes away. "squawk box" will be right back. what are you doing?
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welcome back, everybody. not seeing major moves in any direction. all three indices have green arrows implying they'll open higher. yesterday was a mixed market close. you had the s&p edging higher to another five-year high. gain of less than a point, though. we'll have more of this morning's headlines plus earnings from key financials when we come right back. >> still to come this morning, earnings from citi, plus "squawk" market master mohamed el-erian joins the conversation. plus, meet the university of michigan professor who says the u.s. needs its own sovereign wealth fund. it's all in the next hour of "squawk box" right here on cnbc. with the spark cash card from capital one, sven gets great rewards for his small business!
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earnings alert. quarterly results from citigroup. we will go through the numbers with a banking analyst. >> boeing's dreamliner grounded while investigators look into problems with the batteries. barclays analyst carter copeland is going to tell us how bad things could get for boeing. >> plus breaking economic data. >> hello! >> weekly jobless claims and housing starts will hit the tape at 8:30 a.m. the third hour of "squawk box" begins right now.
>> welcome back. citigroup is reporting numbers that as they hit are a little bit shocking. but there's a lot of items we need to talk about. the earnings per share forecast was 96 cents and the company is reporting 38 cents. the surprise is resulting from some one-time items that analysts didn't know about, for example $500 million in legal costs. the company, unlike some of its peers, only released $86 billion in reserves, versus $900 million that analysts were expecting. if you back all of these out, the actual number is 69 cents a share, which is still well below the estimate of 96 cents. out of that 27-cent difference in analyst expectations, though, 16 cents is in legal costs, and then there's an 11-cent range
based on what all the different analysts that follow the company were forecasting. >> those legal costs were a big forecast of this. >> the revenue was above. >> yeah -- >> sorry, just below. 18.65 versus 18.8. >> the legal costs are the big issue here. we knew about the costs that bank of america had warned us about earlier. there's something about 800 million dollars in legal costs more than we had in the past quarter and about $800 million more than many analysts were expecting. about $300 million of that is from the occ foreclosure review. >> why would you decide if analysts are expecting you to bring back $800 million in reserves, then you only bring back a -- >> citigroup has been more cautious. citigroup has been more cautious than many others. the mortgage business has been a big one. >> do they need the reserves? >> that's what i wonder? what's going on there. >> they're still worried about they're going to need them?
>> is it they're bringing about -- >> this is michael corbett, citigroup's new ceo. he said it's going to take some time to work through the challenges of the current environment. just that alone is one of the statements in the press release on an earnings day if you say well, it's still going to take some time, there may be other shoes to drop. that's what i imagine is going to happen here. they say it's going to take time to realize their core earnings potential as well as improving returns on asset tangible equity, all of these are critical goals going forward. of course those are goals that they had yet to meet. >> that's the real quite there, down 76 cents. that is the kind of action we're seeing. it is, for this to trade higher today, i don't know. they can explain away as much as they want here but i don't know that, i think people are going to look at it -- and it would seem like you'd say well we didn't bring back as many reserves. then it begs the question, why didn't you bring the reserves back. >> conservative management or is it a situation where they have a much worse portfolio when it comes to the mortgage? those are questions that are
going to be asked. there's a conference call coming up a little later. but knee jerk reaction is the stock is down. >> would the guys still be kitchen sinking these quarters, too, andrew? >> you think this is the sandbag, you've got one quarter sandbag? mellody is shaking her head. >> when you read the quote i said i'm a new ceo i start with very low expectations. >> well, what the last guy left me with. >> i'm lucky to be able to do this one. >> it took all my management expertise to get this number out there. >> wait until you see next one. >> we will -- >> that's implied. that was a little footnote. >> that wasn't from the actual quote. >> no, that wasn't -- >> he's very good at reading between the lines. our other big story of the morning, bank of america reported quarterly profit of three sents a share excluding items that was once above estimates. the quarter did contain more than $5 billion in mortgage re lated charges. a quick check on the markets given the news this morning. dow looks like it would open off
almost off but slightly down. nasdaq up almost six points and the s&p 500 would be up as well but only marginally. a quick flyover to asia. the shanghai composite was down over a percent. hang seng was off marginally and the nikkei was up marginally. finally in europe, ftse up, cac up and dax up. cac up almost 1%. >> fly over there but it was not on the dreamliner. >> not today. >> we do have more news on other big dow component. europe, japan and india are joining the united states and temporarily grounding boeing 787 dreamliner. investigators are looking into problems with the batteries and phil lebeau joins us right now with more on this whole story. phil this is one we've been watching every twist and turn along the way. the analyst community seems to be pretty divided on how big of a deal it is and how long it's going to last. >> i think that's the y, becky. how long does it last and can they find a solution for the
lithium-ion batteries relatively quickly. if it's a week to ten days, boeing can take that hit. as you mentioned, the issue for boeing when it comes to the faa air worthiness directive, it involves the lithium-ion batteries on the dreamliner. the grounding was prompted by two battery failures in the last week. the one in boston and then the one earlier this week in japan. in reference to those failures, the faa says these conditions, if not corrected, could result in damage to critical systems and structures. the potential for fire in the electrical compartment. that's the concern. you don't want a fire on an airplane. that's why the grounding took place. united and seven other airlines are grounding their dreamliners. united is likely to replace 787s with other planes for those routes where they were flying the 787 dreamliners. other airlines may not be able to do that. take a look at shares of boeing over the last week. understandably, under pressure again today.
premarket down. ironically, this comes on a day when actually boeing beats airbus in terms of orders and delivery. the first time in a long time -- what we heard from one of the senior airbus executives earlier today regarding the boeing situation. >> so right now we don't think that whatever issues, we don't know what the issues are with the 787, although we do think they'll fix them pretty fast, we don't think that they will apply to us when they do come out with some results about maybe lithium batteries, we'll certainly look at that as part of our certification process. >> okay. that was phil lebeau reporting, we will be back with phil a little later today. we're having a few technical issues with that. joining us on set is barclays analyst carter copeland. you have been following this company. which side of this debate do you take at this point? is this a really, really big deal, look out and stay away from the shares or is this a situation where you would buy on the pullback?
>> i think at this point we're pretty data dependent right here. in the investment community we're not engineers. we're waiting to hear from boeing. we're waiting to hear from the faa. we're waiting to see the results of the ntsb investigation to make a decision about what it all means. so frankly, we're saying to investors is, look, we can't say with any conviction level that there's a certain entry point where we want to jump in here and buy. what we want is more data. if you own boeing shares here, i think you hang on. i think the long-term outcome of this is that they will sort through the problems. you can see airbus this morning expressing confidence that they think boeing, their competitor will sort through the problems. but right now, you know, you're dealing with emotion and you're dealing with news flow, which is very hard for investors to forecast. >> there but for the grace of god for airbus. they're not going to crash airbus. >> look the safety of all things for airplane manufacturers, the one thing they can all agree within, the one thing they share data on, the one thing they're all committed to is safety.
>> if it leaks out of the battery and has a weird smell, it's not a fire. >> yeah, that's really the important thing about what happened yesterday. from my perspective. >> they didn't call it smoke. but then they >> there are mixed reports about exactly what happened on the a&a. >> smell. >> so the thing we worried about, and we talked about this last week, is you know, the connectedness of these events. when you had the logan fire, you know, the issue was are we going to have anything else like this? several of the other incidents that were being reported about had different root causes. the sort of uh-oh moment with the ana incident two days ago, was -- >> did the battery fail? >> we don't know. -- >> there was like an alarm? >> there was an indicator that there was a problem with the battery. so in some instances the plane worked as it was supposed to. the pilot gets an indicator. he sees the batry's not functioning probably, then it's the pilot's discretion to land the plane. it's also the pilot's discretion to open the slides and evacuate the plane that way. it's not clear that that was
necessary. but i think the real issue is, is this connected to the logan fire or not? i think the level of connectedness actually went down over the past 24 hours. but the other pillar of support for investors was they could point to the plane still flying and now they can't. and so that's going to weigh on sentiment today. >> you've just come back recently from meeting with management. >> yeah, i mean the company was scheduled to host a senior leadership meeting out in seattle. i was out there for that. they obviously, as you can imagine, just at the point that that was about to start got canceled, so they could take their senior most engineering talent, redeploy them at the issue, you know, i did get the chance to spend a little bit of time with them. i'd say the one thing i was impressed with was the sort of calmness and focus that they have in approaching the problem. they seem committed to -- >> do you have any idea of what they're going to be doing? what it is when they approach the problem? what do they have to look at? >> yeah, i mean, again, it will come down to i'm not an engineer. but you know, the company seems committed to proving out the
existing technology. it's a lot of speculation in investment community about, okay, well can you swap lithium-ion batteries for some sort of nicad solution? can i strap six car batteries together and put it in there and solve the problem? obviously we don't know that. boeing has some very smart engineers who are going to be working on proving out the certification process that they already proved to get type certification. >> they look calm but they need more than bracelets monitoring their actions. >> get some more sleep. a little calmer. destressing. >> their heart rate variability. you have to be nervous. but you've got to look calm, that's for sure. >> yeah, look, let's face it. this is a company that, from a technology perspective is the absolute best in the world. there's a lot of smart people there. >> the greatest exporter. >> but they've got to address this. this is serious. and as investors, you know, i think we want more data, and if you have data that gives you confidence you can chase the stock when it's up. right now it's hard to have conviction at any level. >> carter, thank you very much for coming in today. >> thank you all. >> coming up, citigroup reported their earnings which were lower
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welcome back, everybody. bank of america cfo bruce thompson finishing up a call. kayla tausche was on that call. >> good morning, becky. i think that the call basically confirmed all of our suspicions. the company was dogged by a lot of those costs regarding those legacy mortgage issues. that was more of what we heard on the call. he spoke specifically about mortgages and how they're looking at continued building share in mortgages. he expects to stay in a tight range for loan loss reserves. and basically, remember, reserves, that's the money that banks set aside basically to cover loans that turn sour. as credit quality improves basically banks set aside less money. that would seem like a good thing except for the fact that now they've been able to start taking some of that money out and put it in their earnings, when, you know, they need it to plug some of those holes. now they're going to be able to do less of that. he said they're going to be in a tighter range for the next ten
months. that's something we saw at citigroup. and he said they're going to continue to try and whittle down their operations in mortgage servicing, and in legacy assets. head count declined 2% there in the last year and he said that you could see further reductions to the 50,000 or so people that they have, both as contractors, and as staff there. so that those issues should start to dwindle a little bit, though. but of course, if there are more settlements, if there is more issues that come out of the woodwork for bank of america here that could continue to hit earnings. that's what investors are fearing right now. and i'll just end with on overall costs he does say that they're on tract with new bac to save $8 billion by the middle of 2015 so that is a positive there. >> you bring up the idea of citi where we did not see a lot of those reserves back. >> city was down, it's come back above 41. it closed at 42.5 and it was below 41. not a great -- >> i know you were on the other call. >> think about the scale of
this. citi released $87 million. bank of america's cfo is saying they're going to stay in a range of 1.8 to 2.4 billion in releases. so that's the scale of the numbers is a little bit off. and the reason is because citi hasn't tapped into their mortgage reserves yet. every other bank has started to say, okay, the housing market is improving, we don't need as much on the mortgage side as we thought we did. citi hasn't tapped those. >> is citi doing this because they're more conservative? >> that's the fear. of course you want to be conservative. no bank in this environment is going to say, i'm going to bet the ranch and just, you know, throw everything in. >> what we were talking about, it does leave more for the new guy to bring back in later, doesn't it? >> especially if everybody else -- >> another 800 he could bring back in when it -- wow, look at my quarter this quarter. i mean, it does. >> the question is whether investors ultimately see through this idea of people bringing money on and off. >> right. >> it's a finite amount of money. eventually you get to the end of it and have to provide real
earnings. >> everything that's happened at citi, it's been moving between two and four because they did the reverse split. so it's not that interesting. it's still $4. never going back to where the prince was margining it up. >> do you feel bad for the prince, joe? >> some of his investments i feel, he made anything with a big name, planet hollywood he made so many weird investments almost like a foreigner looks at the united states. >> you think of the prince and i think of chuck prince. >> i'm talking about -- but it was confusing with citigroup. all right let's talk international markets with the "squawk" market master just back from japan. joining us is mohamed el-erian pimco ceo and co-chief investment officer. mohamed thanks for joining us today. we've been kicking around an earlier conversations the debt ceiling, and the way we're feeling about it. i noted that we do not have a clock. if we don't have a clock showing how many hours are left till the debt ceiling, we're not
obviously as focused on it as we were with the fiscal cliff. do you think that's going to change or are we becoming desensitized to these things that washington is doing? >> i think we are becoming a little bit desensitized. but it is going to change. the reason why you don't have a clock is because you've got not just one event, you've got three events. and it's not clear what -- which one you use to calibrate your clock. you've got the debt ceiling. you've got the sequester. and you've got the continuing resolution. so, this one is more complex and you're likely to see progress on part of it, and a lot of brinkmanship and probably very last-minute issues on other parts. so this is going to be more complex than what we had at the end of the year, unfortunately. >> mohamed, you seem disappointed that the coin was off the table. i thought that was a little odd. i mean you're a serious guy. but then i read what your point was, that if either side thinks that they're dealing with some real lunatics on the other side, that that helps in bargaining.
so i think you wanted to do the trillion dollar coin just to match up with what you perceive as the lunatics in the house, right? >> no, what i'm trying to say, joe, and this is really important in having a framework to understand this, and game theory which economist views as really useful, you have two parties that have to cooperate. they have to come together and agree on something. because no single party can force its outcome. now we know under which conditions this works and under which conditions it does not work. it works when there's mutual trust. unfortunately that's not the case today. it works when there's an outside enforcer. the question is how do you get this negotiation, this bargaining to work in the interest of the country? and that's why it's so important to have a framework to understand. because as investors, it's not just about topline revenue growth. it's not just about the economy. it's also about the political risk and policy risk. as investors we owe it to our clients to bring all that together to make an educated investment positioning for their
portfolios. >> all right. so then what did you -- i know how you look around corners at pimco and multispeed universe. i got all your phrases in this new normal that we have. how are you handicapping those three things that you said? i don't think you're positive about the two sides coming to the. are you? >> no. first, joe, it's great that you say new normal. >> i say multi -- i say -- we'll see whether it really is a new normal. a new normal can't only last three years, mohamed. i'm still hoping you're wrong. i don't want this forever. >> no, we said in 2009, two to five years. so 2009 we said it for three to five years. >> wait a second. that means you're already right it's 2013. >> you're done. by coincidence he's already right. >> slow growth, unusually high unemployment, the system credit and debt issues. okay so in terms of what to expect, you should expect that once again it's going to be incredibly noisy. we're not going to get any positive momentum out of this to
deal with the other issues facing the economy. we will get some content, but it will not be the grand bargain. it may not even be the mini bargain. it's going to be another one of these microdeals that simply kicks the can down the road. >> you know, i see one question for you, when you think about, if you could tell them one thing to do right now, what would you say to do? what would be your best suggestion? >> i would say step back and ask why are you doing all this and what is your objective? and the objective is very simple. economic growth. if you get growth, then both republicans and democrats can deliver to their constituencies. and what's happening right now, is rather than enable growth, washington's creating headwinds to growth. i would say step back, you know, get out of this negotiation -- i call it like a divorcing couple arguing over a pillowcase. it's not about the pillowcase. it's about the estate. and it's about growth for this country. and step back and ask the question, what is it that serves
everybody's interests and its economic growth? unfortunately, the debate isn't stepping back. >> mohamed, do you see an end to the new normal, though? if it was a three to five-year prediction and we're more than three years into it, is there something that can make you say, maybe the next time you're on, if you saw "x," "y" and "z" you could say this is the end of the new normal and we're back to a better growth scene air crow? >> we're going to have a very in-depth discussion in may at simco's secular forum. there's two elements here that are really important. one is that sectors have healed. that the new normal has allowed time for the corporate sector to heal, for the housing sector to heal. that's positive. that's how you come out of the new normal. on the other hand the politics have gotten really complicated and the global politics have gotten really complicated. just look today, how germany is reacting to what japan is doing. in fact, jeff fox of cnbc.com has a great piece of saying wait a minute, indicators that currency wars are starting to be a threat.
so we're trying to balance the healing part, which has occurred, with the complex domestic and global politics. >> so mohamed, when w c of the new normal, it will definitely be better, or is there a chance we come out and look back and say, wow, i wish we were still in the new normal? it's going to be better, right? these are all factors that are subtracting from our prosperity? it will be better when it ends? we won't go back into something that's even worse than the new normal? >> so the distribution of expected outcomes has two tales, right? everybody wants the positive tale which is we tip into higher growth, lower unemployment and we deal with our growth -- with our debt issues through economic growth. that is the best outcome. but we've got to be careful, because at the other tale, which is europe doesn't get its act together, the middle east gets more complicated, so it's a two-tale distribution, joe. >> yeah. okay. i think i got that. moemd, thank you. we appreciate it. good to see you. all right coming up, we have breaking economic data, weekly
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expecting. i think it was something like $800 million more than they reported in the third quarter. revenue were also slightly below consensus. the stock this morning is down by about 3.4%. it's been sharply lower. it was trading, joe, you said below $41 at one point? >> 40.90. >> 41.05 right now. when we come back the closely watched weekly jobless claims and housing starts for december. the futures are still indicated higher. at optionsxpress we're all about options trading. we create easy-to-use, powerful trading tools for all. look at these streaming charts!
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welcome back to "squawk box." we have the summer housing starts, up, much more than expected. over 12%. 9 54,000. of course that's seasonally adjusted annualized units. we look at permits, about as expected. up less than 1%. but up nonetheless. 903,000. and that's, of course, seasonally adjusted and annualized. let's look at continuing claims. they were 3.21 million. which is an increase. and, initial jobless claims had a big drop from 372,000 down to 335,000. so that is down 37,000. a much bigger drop -- excuse me, 47,000, that's a much bigger
drop than most were looking for. and, you know, it's amazing so me, actually, to see this number and i'll tell you why. normally we'd be associated anything kind of breaking out of that recent range, and i think 350 would be what most people would view as the bottom. should give us huge job numbers. but i can tell by looking at the market that's not exactly what they think. not really that much different than we were, a slight increase in equities and we're going to continue to monitor the range and interest rates yesterday was 180 level, today looks like it's going to be the 190 level for the ten year. back to the table. >> thank you mr. santelli. let's get to steve liesman who has a report on the debt ceiling. >> andrew, thanks. we want to look at the economic effects of the debt ceiling. kind of in context with what each party is saying about it and how investors might put it into a matrix to make up their minds about what is really going to happen with the question. is it a real tragedy or a soap
opera? if you look up here, we've graduated this there blue to red, meaning democrat on this, republican on that side. you know, the democrats are starting to say if you go over the debt ceiling, you hit it, calamitous. and you have other words from damaging to manageable, republicans saying we can do this for awhile and it will be okay. i want to look at specific issues here. democrats say any missed government payment is a default. republicans say, no, only when you don't pay the interest on the debt. how about on the issue of can the government prioritize payments so that the incoming cash equals the outgoing cash? really the republicans -- i'm sorry, democrats saying no authority to do this and really no ability to program our computer system to do that. republicans saying you know what? the government can pay just the interest, social security and defense spending meaning military salaries. markets, of course, democrats say they're going to demand higher wage because of this. republicans will suggesting they'll overlook this gridlock. finally on the economy, a lot of
folks saying it would cause a depression. republicans say, there are temporary effects here. now, okay, so let's do this. could you, if you were treasury secretary, so you make spending equal cash flow? get ready to play folks? the debt ceiling game, calling this the home edition, here are different items in the government, in the federal government budget, what you've got to do is check a box, fund it or don't fund it. now we've rigged this now so we've worked on tv. we're going to fund all these things. and what we're going to do is we're going to make our spending equal the cash flow of 277 billion dollars so we're going to pay the interest, we're going to pay medicare, medicaid, social security, military pay, retirement, veterans benefits and defense vendor payments, federal salaries. okay got it. 275. we fund this, it means we cannot come over here zoom on in, we cannot fund that. we can't give tax refunds, we can't run health and human services, supplement security and we can't find departments of
justice, fema, energy the faa, highways or the epa. okay. now let's say you take this 175 billion a month out of the economy and government spending. let's now compare the fiscal cliff with the debt ceiling. here's the fiscal cliff we talked about it a lot. gdp impact was estimated to be 4% if it happened. with spending cuts of 120 billion, tax hikes of 480. by the way, this 120 still hangs around. that's the sequester. so now zoom out now, let's take a look at what the debt ceiling would be by contrast. there's the debt ceiling. zandi i talked to the other day, talked to some other economists, they're saying if you hit the debt ceiling, you stayed there, you made government spending equal cash flow would be about 7% hit to gdp. essentially taking a trillion dollars out of the economy. so there it is, guys. the debt ceiling game, home edition, have fun tonight. >> this is actually much bigger deal. >> it's a huge deal. >> but would never last --
>> never going to happen, right? that's what people say. >> okay. >> relax, steve. >> i'm okay. >> what happens is the rating agencies -- >> your heart rate is going. >> what's that? >> what about the ratings agencies if they were to downgrade us, if we went over, if we went over for a day it's one thing, if we went over and stayed for a week, do they look at it just because washington can't get along, that's reason enough for another downgrade? >> that's a critical question. that's why the democrats are likely to define default as missing any government payment because they believe there could be some reaction from the rating agencies. last time around, december of 2011, fitch said that missing a government payment would cause the outlook of the u.s. to go negative. but would not itself force a downgrade. so there's that issue, that fight over what exactly constitutes default. i know the treasury secretary himself is worried about the market implications of the government, for example, not paying a vendor. and the cascading effects that could happen from that. >> but nothing happens, steve, in terms of when we lost our
aaa, it was -- >> that's true. >> was there a single bond that was pulled by any pension plan or sovereign fund based on not being aaa anymore. >> no, interest rates actually fell. i would suggest, joe, this is another topic for another day but i would suggest interest rates would fall again if we were to hit the debt ceiling. because you would essentially make more scarce that very thing that everybody seems to covet these days, which mellody was talking about earlier, which is the safety of a u.s. government treasury. >> okay. mr. liesman, thank you for that. >> welcome. >> citigroup out with quarterly results below analyst expectations. joining us now on the "squawk" newsline is anthony pellenny, managing director at raymond james. good morning to you. >> good morning. >> what do you make of this? $86 million in reserve releases, versus $900 million that analysts had been expecting. first of all, what were you expecting? >> bingo. they missed by about a billion dollars in reserve releases which is about 25 cents per share.
>> and what happened? >> hard to say. all along citi has been much more conservative about economic recovery in the u.s., the housing recovery in the u.s., so i think this is just kind of the new ceo's double dose of caution as we head into the new year. also in front of the stress test, in general, i think these bigger banks have been pulling back a bit on the reserve releases. >> what does this portend? is this something we don't know about? >> i don't think so. i think this is clearly a buying opportunity. i think the billion dollars we didn't get in reserve releases this quarter we get throughout the course of 2013 so it's just a timing issue more than anything else. >> our good friend mellody hobson suggested without saying it they were sort of sandbagging. corbett, this is his first outing, this way he can continue with the honeymoon? >> i wouldn't disagree necessarily with that. i will point to the fact that
citi had strong loan growth, strong deposit growth, that their margin was up, revenues in general were flatish or in line with expectations but their net interest income was actually slightly higher than expected. so this is a pretty good quarter to model off of. if we can get a little more clarity on what to put for the reserve relief. >> on premarket the stock's almost up 3%. you say this is a buying opportunity. what's the price tag on this company? >> without a doubt. i mean tangible bulk are probably be 52 by the end of the year. i think by that point we will also be within one year of 10% return on tangible. common equity. so that typically means the stock trades around tangible book. so i'll put a $52 bryce target over the next twelve months. >> mellody, a question? >> i think i'm good. the only thing i guess i would wonder from your perspective, when you think about investors and the fear they've had around the financials in general, do you think that these fears start to be assuaged as we continue into 2013? >> you know, so far the big negative has been margin.
i mean that's really what we were looking for this quarter. some positive news on the net interest margins. and i think in general they've come in better than expected. you know, bac reported, bank of america this morning and pnc, both margins were up slyly. the street had been forecasting down margins. the critical variable is the ten-year yield. if we can get it above two and stay there i think the outlook for bank earnings growth is going to be positive in the second half of this year. >> thank you for joining us this morning. appreciate your perspective. coming up, gilt group, trying to gain market share in luxury retail by expanding its user mobile devices. we'll talk to the company's chairwoman next. [ male announce] you are a business pro. omnipotent of opportunity. you know how to mix business... with business. and you...rent from national. because only national lets you choose any car in the aisle. and go. you can even take a full-size or above.
welcome back, everybody. take a look at the futures. they have picked up a little bit. earlier this morning you saw mixed indications that looked like a couple of indices might open lower. dow up 27 points, s&p futures up 5 points after finishing yesterday at another five-year high. we've been talking about a sluggish economy. it is a tough environment for luxury as people trade down and start looking for bargains. joining us is susan lyne, chairman of gilt.com. she's also the former president and ceo of martha stewart living. also on set with us this morning our guest host, mellody hobson. susan thank you for joining us this morning. >> thank you. >> i checked out gilt.com and i have to say, these are great brands at great prices. >> it is. >> how do you offer some of the bargains you're offering? >> you know, we've got long
relationships now, we're about five years old, with many of the top brands, and they realize this is a great way for them to sell excess inventory and everyone has excess inventory because these are event-based sales. they're quick. and consumers love them. >> i've seen you run out of stock quickly on these things. buy it now or it's gone type of situation. >> yep. >> is it a difficult environment for luxury right now? is that a fair estimation? >> our sector has had a fantastic holiday. we were up over 30% on gilt.com. >> but you're talking about bargain prices, where people are -- >> well, that's true. but they're still expensive goods. you know, when you're buying a $1,000 dress for $500. you're still spending $500. so you're right. i think there is a new or relatively new desire for a deal. no question about that. but, i also think that there are
plenty of luxury brands that are doing very well right now. i think there's been a lot of noise in that space because of the tiffany earnings. >> because of tiffany earnings, people say people are no longer going to buy. that was partially because of an international picture of what's happening. >> it was. and it was also, if you dig into it, it was really about their opening price point goods. it was about the silver jewelry, which has always been the way they bring in consumers. and their high-end goods actually did very well. so, there is still the 1% out there spending. >> who is your customer? is it somebody who is a 1 percenter who would normally be going into these stores or somebody trading up? >> i would say it is two different groups. one are young people, 20 to 30, who love great brands, and are in their first or second job, and we're their way to access those brands at this point in their lives. and the other group is people like us, who have more money
than time, and gilt does a great job kurating wonderful sales of great brands, and it's a very easy shopping experience. >> you revolutionize this sort of flash sale category. but now there's a lot of people who want to be in this space. is that good or bad for you? >> i think that's a good thing. if no one else comes into the space it's because it's a bad business model. and i think there are -- there are a number of new companies that are doing interesting things. and that keeps everybody on their game. >> are there areas you plan to expand in? we wer talking before about travel. are there areas that doesn't really work? >> you know, i would say we're not going to be moving into new categories. what we're doing is trying to continue to really innovate in the space. so one area we see just incredible opportunity is in mobile sales. you know, our mobile sales now are 30% of our overall sales. that was maybe 5% a year ago.
and mobile commerce was up 80% this year. it's going to continue to just crush it. and that's a category that doesn't even exist five years ago. >> one thing i've always wondered about, is there a correlation between how expensive the item is and someone's willingness to buy it mobile? >> no. because that's the shocking thing to me. right. we've sold $20,000 diamond rings on iphones. we've sold cars on iphones. so there's no limit to what people -- >> you sell cars on gilt? >> yes, we do. >> what kind of cars? >> event. we've sold the new range rover when it came out. the eclipse i've got the wrong -- >> i know which one you're talking about. i remember the ad. >> relaunched the volkswagen jet to on gilt, and sold cars for
$5,999. needless to say they went in split seconds. and last month we sold a jaguar for well over $100,000. >> wow. >> susan we want to thank you for coming in today. and giving us some insight into some things that we haven't talked about in awhile. i think that's a great point. that maybe it's a tiffany situation and that it was really the base price point that were their big concerns. might change the discussion on that. >> i think there's a lot of noise in the marketplace right now and you just have to see what happens over the course of the next three to six months. between sandy and the fiscal cliff, and newton, there were so many things that could have impacted sales during that holiday season, that it will be interesting to see how the first action second quarter go. >> the site is gilt.com, that's g-i-l-t, not g-u-i-l-t. >> feels guilty. coming up, today's talks banks,
boeing and more stocks on the move ahead of the opening bell. we'll check in with jamim crame at the new york stock exchange. don't miss cnbc's coverage of the second inauguration of barack obama on monday morning starting at 11:00 eastern time. . they don't know it yet, but they're gonna fall in love, get married, have a couple of kids, [ children laughing ] move to the country, and live a long, happy life together where they almost never fight about money. [ dog barks ] because right after they get married, they'll find some retirement people who are paid on salary, not commission. they'll get straightforward guidance and be able to focus on other things, like each other, which isn't rocket science. it's just common sense. from td ameritrade.
welcome back. the futures are indicated higher. in fact picked up quite a bit of steam. at this point the dow futures are up 52 points, let's get down to the new york stock exchange. jim cramer joins us now. we've had good economic numbers that came out that spurred things, but a lot of news on the big stocks, too. the financials are out this morning. why don't we start off talking a bit about boeing. we've had several analysts on this morning. the question is, what you do you do with the stock while you wait to hear more information about what's really happening? >> headline risk continues. remember the stock was between 69 and 70 for quite a long time. people were hoping for a big different boost, i don't know if that can happen. there was a great airbus conference call this morning on between 4:15 and quarter of 5:00. those guys are smoking it. i think what's going to happen is eventually there will be
order cancellations. i don't buy that. i don't want to buy boeing, but i don't buy the end of boeing story either, becky. >> that sounds like safe advice for people. we have to see what happens. we heard from citi and bank of america this morning. bank of american was a bit better than people were expecting. citi definitely quite a bit worse especially on the headline number. citi, i do think they're being cautious. the stock has had a run. frankly barch of american reminds me if i get a -- i would rather have it be with a bbt, and with usb, because the mortgages how many bad mortgages does bank of america have. their legal bill is literally bigger than a lot of what the regional banks make. i think the end of the long money center short regional bank trade is happening right now.
retails look more attractive. >> i'm looking on your tweets, what did you say about chip kelly? you must be floating on air. >> i was so excited, that i just -- i just think it's the greatest, a complete housecleaning. i'm a big howie roeman fan. it's a total rye birth. we're going to go from the most predictable to the least predictable. >> eagles and chip kelly don't -- everything's going to change. that's really exciting for you. >> i cannot -- i go to training camp every year, and you know what? i don't think this will be the year, but i think 2014 will be a year like you wouldn't believe. he has to assemble a new team. i think everybody goes thattic go except for shady mccoy. >> i think you'll buy that team one day. if it's for sort, i'll get a
consortium. >> i know you will. you're load ed i'm serious. >> laurie loves the team. he's a good guy. >> we'll see you in a few minute sdploos coming up, our guest host han ariel hobson. we'll give her the last word when squawk returns. tomorrow earnings alert. quarterly results from general electric. "squawk box" starts tomorrow at 6:00 a.m. eastern. we've decided to put aside our rivalry. 'cause all our states are great. and now is when the gulf gets even better. the beaches and waters couldn't be more beautiful. take a boat ride or just lay in the sun. enjoy the wildlife and natural beauty. and don't forget our amazing seafood. so come to the gulf, you'll have a great time. especially in alabama. you mean mississippi. that's florida. say louisiana or there's no dessert.
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[ male announcer ] save on ground shipping at fedex office. tomorrow, life on the run. welcome back to "squawk box." back to our guest host melody hobson, a walking example of what a jesuit college prep school can result in. >> i hope that's a good thing. >> claims number, five-year low, housing starts up 12%, safety bubble. >> ending. >> may be ending. andrew alluded to it earlier, it seemed like this bubble would be bursting. >> that's why we're so bullish on ecwitsds.
we think about slowly the economy will continue to recover. the unemployment number will start to drift down precisely because people have been on the sidelines, that's actually a good thing when you're a contrarian investor, and like this concept from ed mathias, he calls it a melt-up. people will melt up into equities, and i think that's a start idea. >> you've covered financial markets, too as a journalist, in addition to your normal job. doesn't it -- and so have we -- but doesn't it seem where days in the past it would be exciting to be a financial journalist not because of the cries, but because of positive things, market hitting new highs, exciting new companies. we've been out of that news loop for a while to the point where even the news cycle reflects the disinterest in the stock market right now. >> however, when it's bad, you